Inherited Property Tax Calculator 2026 β Stepped-Up Basis & Capital Gains
Calculate capital gains tax on inherited property using the stepped-up basis rule. Includes NIIT, selling costs, post-inheritance improvements, and sell-now vs. hold-and-rent comparison.
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Stepped-up basis β this is your starting basis $
Gross sale price of the inherited property $
Capital improvements you made (adds to basis) $
Commission, title, closing costs (reduces gain) $
Salary + other income β affects LTCG rate and NIIT %
$0
Total Tax Owed
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Net After-Tax Proceeds
$0
Taxable Capital Gain
$0
Net Investment Income Tax
Inherited Property Capital Gains Breakdown
How Inherited Property Taxes Work
The stepped-up basis is one of the most powerful tax benefits in the tax code. When you inherit property, your basis resets to the date-of-death fair market value, eliminating capital gains tax on all appreciation during the decedent's lifetime.
Formula
Stepped-Up Basis = Fair Market Value at Date of Death
Adjusted Basis = Stepped-Up Basis + Post-Inheritance Improvements
Gain = Sale Price β Adjusted Basis β Selling Costs
Tax Treatment: Always long-term (regardless of holding period)
LTCG Rate: 0% / 15% / 20% based on total income
NIIT (3.8%): If MAGI > $200K single / $250K MFJ
Total Tax = LTCG Tax + NIIT + State Tax
Adjusted Basis = Stepped-Up Basis + Post-Inheritance Improvements
Gain = Sale Price β Adjusted Basis β Selling Costs
Tax Treatment: Always long-term (regardless of holding period)
LTCG Rate: 0% / 15% / 20% based on total income
NIIT (3.8%): If MAGI > $200K single / $250K MFJ
Total Tax = LTCG Tax + NIIT + State Tax
Example
Inherited house FMV $650K, sold for $720K, $20K improvements, $43.2K selling costs, $180K other income (single):
Adjusted basis: $650,000 + $20,000 = $670,000
Gain: $720,000 β $670,000 β $43,200 = $6,800
Total income: $180K + $6.8K = $186.8K β 15% LTCG rate
Federal LTCG: $6,800 Γ 15% = $1,020
NIIT: Below $200K threshold β $0
Total tax: ~$1,360 (with 5% state)
Adjusted basis: $650,000 + $20,000 = $670,000
Gain: $720,000 β $670,000 β $43,200 = $6,800
Total income: $180K + $6.8K = $186.8K β 15% LTCG rate
Federal LTCG: $6,800 Γ 15% = $1,020
NIIT: Below $200K threshold β $0
Total tax: ~$1,360 (with 5% state)
Extended
Sell Now vs. Hold & Rent Analysis
Compare after-tax proceeds from selling now vs. renting the inherited property for several years
Model whether it makes more financial sense to sell now or rent the property for several years before selling.
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Property tax, insurance, maintenance, management %
| Scenario | Sale Price | Rental Income (Net) | Capital Gain Tax | Total Tax | Total Net Benefit |
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* Rental income tax is estimated at 32% marginal rate. Depreciation recapture on building applies when selling after renting.
Frequently Asked Questions
What is stepped-up basis on inherited property?
When you inherit property, your cost basis is "stepped up" to the fair market value (FMV) on the date of the decedent's death. This means any appreciation that occurred during the deceased owner's lifetime is completely erased for income tax purposes. For example, if your parent bought a house for $100,000 and it was worth $600,000 at death, your basis is $600,000 β not $100,000. Only appreciation after the date of death will be taxable when you sell.
Is inherited property always treated as long-term for capital gains?
Yes. Under Section 1223(11), inherited property is automatically treated as long-term capital property regardless of how long you actually hold it. Even if you sell the inherited property the day after inheriting it, the gain is taxed at long-term capital gains rates (0%, 15%, or 20%). This is a significant benefit compared to other property where you must hold for more than 12 months to qualify for long-term treatment.
What is the Net Investment Income Tax (NIIT) on inherited property?
The 3.8% Net Investment Income Tax (NIIT) applies to capital gains (including gains on inherited property) if your Modified Adjusted Gross Income (MAGI) exceeds $200,000 for single filers or $250,000 for married filing jointly. The NIIT applies to the lesser of your net investment income or the amount your MAGI exceeds the threshold. This means high-income beneficiaries pay effectively 18.8% or 23.8% on inherited property gains.
What improvements and expenses can I add to the stepped-up basis?
After inheriting the property, you can increase your basis for capital improvements you make (renovations, additions, major repairs that extend the property's life). You can also add selling costs to the basis when you sell, including real estate commissions, title insurance, legal fees, and transfer taxes. These additions reduce your taxable gain and therefore your tax liability. Note: routine maintenance and repairs do not increase basis.
What is the estate tax basis if I received the property from a trust or an estate?
For property received from an estate, the stepped-up basis equals the FMV reported on the estate tax return (Form 706) or the date-of-death value if no estate tax return was required (estate below the $15M 2026 exemption). For a revocable living trust, the step-up rules are the same β the trust assets are included in the grantor's estate and receive a full step-up. For irrevocable trusts, the step-up depends on whether the assets are included in the grantor's taxable estate.